2025 Cost of Tender Explained: Understanding Fees for Commodity Delivery

Julia Kagan is a financial and consumer journalist, formerly a senior editor for personal finance at Investopedia.

What Is the Cost of Tender?

The cost of tender encompasses all fees related to the delivery and certification of commodities tied to a futures contract. Essentially, it represents the total expenses incurred when taking physical possession of a commodity upon contract expiration. These costs apply only if the holder opts to receive the actual commodity instead of closing their position before the contract matures.

Key Insights

• The cost of tender includes storage, transportation, and handling fees associated with fulfilling a derivatives contract.
• This cost often factors into the basis—the price difference between the futures contract and the spot market price.
• Most traders avoid these costs by closing or rolling over contracts before expiration to sidestep physical delivery obligations.

Breaking Down the Cost of Tender

Think of the cost of tender as the operational expenses linked to the physical transfer of commodities. For example, if an investor holds a long position in a corn futures contract, the seller is responsible for delivering the corn at contract expiry unless the investor closes the position beforehand. The buyer then reimburses the seller for all tender-related costs, including transportation, storage, and other delivery expenses.

In financial markets, "tendering" means notifying the clearinghouse of the intent to initiate delivery of the physical commodity underlying a futures contract. Most commodity futures investors avoid physical delivery by closing their contracts early, allowing them to capitalize on price movements without managing the complexities of actual commodity receipt.

If physical delivery is chosen, the cost of tender depends on various factors, notably the delivery location. The delivery point significantly influences the net delivery price because transportation and handling costs vary by location. Specifying a delivery point in the contract ensures clarity in pricing and logistics.

How Does the Cost of Tender Work?

Traders often "roll over" futures contracts nearing expiration by closing the current position and opening a new one with a later expiry date. This strategy helps avoid the cost and responsibilities of physical settlement. Futures contracts have set expiration dates, unlike stocks which trade indefinitely.

Costs of tender are typically settled through physical delivery or cash settlement. Many financial futures, such as popular e-mini contracts, are cash settled at expiration, meaning the contract's value is marked to market on the last trading day, and accounts are adjusted for profits or losses accordingly.

Tender fees are generally paid to certified warehouses where delivery and inspection occur, or sometimes to clearinghouses. These charges can vary widely between warehouses, and exchanges do not impose strict limits on tender fees. Most exchanges publish their tender cost schedules on official websites, and sometimes the specific fees are detailed within the futures contract itself.

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